Occupying an area that fringes the southern flanks of the Caucasus Mountains, it is bounded on the north by Russia, on the east by the Caspian Sea, on the south by Iran, on the west by Armenia, and on the northwest by Georgia.

The exclave of Nakhichevan is located southwest of Azerbaijan proper, bounded by Armenia, Iran, and Turkey. Azerbaijan includes within its borders the predominantly Armenian enclave of Nagorno-Karabakh, which from 1988 was the focus of intense conflict between Azerbaijan and Armenia.

Azerbaijan covers an area of 33,400 sq mi (86,600 sq kilometres). Its capital is the ancient city of Baku, whose harbour is the best on the Caspian Sea.

In addition to its variegated and often strikingly beautiful terrain, Azerbaijan offers a blend of traditions and modern development. The proud and ancient people of its remoter areas retain many distinctive folk traditions, but the lives of its inhabitants have been much influenced by accelerating modernisation characterised by industrialisation, the development of power resources, and the growth of the cities, in which more than half the people now live. Industry dominates the economy, and more diversified pursuits have supplemented the exploitation of oil, of which Azerbaijan was the world's leading producer at the beginning of the 20th century. Fine horses and caviar continue as some of the more distinctive traditional exports of the republic.

Azerbaijan was an independent nation from 1918 to 1920 but was then incorporated into the Soviet Union. It became a constituent (union) republic in 1936.

Azerbaijan is a republic with one legislative body; its head of state and government is the president, assisted by the prime minister.

AZERBAIJAN FACTS

Population: 8.4 million (UN, 2003)

Capital: Baku

Major language: Azeri, Russian

Major religion: Islam

Life expectancy: 69 years (men), 75 years (women) (UN)

Monetary unit: 1 manat = 100 qapik

Main exports:
Oil, oil products

Average annual income:
US $650 (World Bank, 2001)

Internet domain: .az

International dialling code: +994

In 1994 Azerbaijan signed a contract worth 7.4bn-dollars with a Western consortium led by British Petroleum, but few other sectors of the economy have benefited from the oil wealth so far. The deal expires in 2024. Implementation has been delayed by wrangling over the status of the Caspian.

Often accused of rampant corruption and election-rigging, Azerbaijan's ruling circles are walking a tightrope between Russian and Western regional geostrategic interests and struggling to redefine the nation's economic priorities.

As the Soviet Union collapsed, the predominantly Armenian population of the Nagorno-Karabakh region stated their intention to secede from Azerbaijan. War broke out. Backed by troops and resources from Armenia proper, the Armenians of Karabakh took control of the region and surrounding territory. In 1994 a cease-fire was signed. About one-seventh of Azerbaijan's territory remains occupied, while 800,000 refugees and internally displaced persons are scattered around the country.

Ilham Aliyev took over as president from his father, Heydar, following elections in October 1993. Heydar Aliyev had been a candidate for re-election but deteriorating health led him to pull out of the race just a couple of weeks before the vote in favour of his son whom he described as his "political successor".